Professor Nouriel Roubini–he of the sometimes harsh “tell-it-like-it-is” school of economists–weighed in recently on the growing awareness of improvements in our economy. These glimmers of light, most of which are examples of things getting “less-worse” than of things actually getting better, have been hailed as “green shoots,” with the assumption that they are harbingers of a recovering economy.
Roubini warns that hopes that green shoots of recovery may be springing up here have been dashed by plenty of yellow weeds. “The consensus view that the global economy will soon bottom out has proven-once again-to be overly optimistic,” he asserts, noting that the signs of recovery throughout the world are very shaky, indeed. And he offers the following helpful history lesson.
“After the collapse of Lehman Brothers in September 2008, the global financial system nearly melted down and the world economy went into free fall. Indeed, the rate of economic contraction in the fourth quarter of 2008 and the first quarter of 2009 reached near-depression levels.
“At that point, global policymakers got religion and started to use most of the weapons in their arsenal: vast fiscal-policy easing; conventional and unconventional monetary expansion; trillions of dollars in liquidity support, recapitalization, guarantees, and insurance to stem the liquidity and credit crunch; and, finally, massive support to emerging-market economies. In the last two months alone, one can count more than 150 different policy interventions in the world.
“This policy equivalent of former US Secretary of State Colin Powell’s doctrine of ‘overwhelming force,’ together with the sharp contraction of output below final demand for goods and services (which drew down inventories of unsold goods), sets the stage for most economies to bottom out early next year.”
Ah, a green shoot of good news from Professor Roubini! We’ll probably see the bottom of this recession “early next year.” But that doesn’t mean the economy will snap back to a vigorous state. Instead, the recovery will continue to be slow, grinding its way to relative health-and with a great many potential pitfalls along the way. We will need somehow to know when it is time to focus on minimizing future inflation. We will need to continue helping those who lose their jobs, for there will be many more of them deep into 2010. (Roubini predicts an unemployment rate of 10% or higher.) Retailers will need to be able to hold on as consumers continue to pay down debt rather than taking on new debt and spending freely. And we will need to be sensitive to the big imbalances in current-account deficits throughout the world. (Frankly, the professor’s list extends far beyond this.)
But the green shoot remains. Beyond the next six months of slow improvement we will see a bottom, probably even for home prices. And beyond that, more slow improvement… with a need for careful steering in Washington and, perhaps even more crucially, at state and municipal levels.
